Kontoor brands announces second quarter 2019 results
Greensboro, n.c.--(business wire)--kontoor brands, inc. (nyse:ktb), a global lifestyle apparel company, with a portfolio led by two of the world’s most iconic consumer brands, wrangler® and lee®, today reported financial results for its second quarter ended june 29, 2019. kontoor became an independent, publicly traded company on may 23, 2019. “the restructuring and cost savings actions we’ve taken to simplify and stabilize the organization are paying off and are setting the foundation for improved profitability in the second half of 2019 and beyond,” said scott baxter, president and chief executive officer, kontoor brands. “we will remain disciplined in our approach and focused on our total shareholder return goal of 8 to 10 percent supported by an industry leading dividend.” second quarter 2019 income statement review this release refers to “adjusted” amounts that exclude the impact of restructuring and separation costs, changes in our business model and other adjustments, as well as “constant currency” figures, which are further described in the non-gaap financial measures paragraph below. revenue decreased 8 percent to $610 million on a reported basis in the second quarter of 2019 and was down 7 percent in constant currency. on an adjusted basis, revenue declined 6 percent to $602 million. adjusted revenue declines, during the quarter, were primarily driven by three factors: impacts of a major u.s. retailer bankruptcy in q4 2018, which represented about 2 points of the decline; actions to exit an underperforming country in europe and to change business models in select markets, which contributed an additional 2 points to the decline; and, foreign currency headwinds that impacted revenues by approximately 1 point. during the second quarter, u.s. revenue was $487 million, down 3 percent on a reported basis. adjusted u.s. revenues declined 1 percent. international revenue was $123 million, down 25 percent on a reported basis and down 19 percent in constant currency, driven primarily by strategic actions to exit an underperforming country, as well as business model changes in select markets. adjusted international revenues declined 23 percent, with strategic actions and timing shifts of shipments largely driving the declines. wrangler® brand global revenue decreased 8 percent to $364 million on a reported basis, down 7 percent in constant currency, largely driven by international performance. u.s. revenue declined 3 percent due to timing shifts of shipments and the customer bankruptcy. adjusted global revenues declined 8 percent. excluding currency and the impact of the customer bankruptcy, wrangler® adjusted revenue would have been down 6 percent in the quarter. of note, excluding the bankruptcy, wrangler’s u.s wholesale performance was up 2 percent in the first half of 2019, and we anticipate global sales to accelerate in the second half of this year. lee® brand global revenue decreased 5 percent to $207 million on a reported basis, down 3 percent in constant currency. adjusted global revenues declined 5 percent. excluding currency and the impact of the customer bankruptcy, lee® adjusted revenue would have increased 1 percent in the quarter. other (including non-branded vf outlet™ and rock & republic®) global revenue decreased 20 percent to $39 million, while on an adjusted basis, other global revenue decreased 2 percent to $35 million. gross margin decreased 160 basis points to 38.6 percent on a reported basis. on an adjusted basis, gross margin was down 110 basis points to 40.0 percent. declines were primarily due to charges associated with global restructuring activities and related actions, as well as the impacts of unfavorable channel mix driven by lower international sales and higher levels of distressed sales, as well as negative impacts from foreign currency. the comparative performance in gross margin will improve in the second half of the year versus the first half. selling, general & administrative (sg&a) expenses were $182 million on a reported basis, up 110 basis points, as a percent of revenue. on an adjusted basis, sg&a was $167 million, down 40 basis points as a percent of revenue, driven by expense control. operating income on a reported basis was $54 million. on an adjusted basis, operating income was $74 million, down 11 percent. operating margin on a reported basis declined 260 basis points to 8.8 percent. adjusted operating margin decreased 70 basis points to 12.3 percent. earnings before interest, tax, depreciation and amortization (ebitda) on a reported basis was $60 million, down 26 percent. adjusted ebitda was $82 million, down 10 percent. ebitda margin on a reported basis declined 250 basis points to 9.9 percent. adjusted ebitda margin decreased 60 basis points to 13.6 percent. earnings per share was $0.67 on a reported basis. adjusted earnings per share was $0.96. balance sheet the company ended second quarter 2019 with $77 million in cash and cash equivalents, and approximately $1 billion in total debt, after paying down approximately $50 million of debt during the quarter. on july 23, 2019, kontoor brands’ board of directors declared a regular quarterly cash dividend of $0.56 per share payable on september 20, 2019, to shareholders of record at the close of business on september 10, 2019. inventory at the end of second quarter 2019 was $538 million, up 9 percent compared to the prior year period, primarily due to inventory built in anticipation of plants closed during the quarter. at year-end, inventory levels are expected to improve and be relatively flat to below prior year levels. full year 2019 outlook reaffirmed “we have the pieces in place and see a clear path to achieving our long-term revenue growth, margin improvement, and cash generation goals,” said baxter. “these improvements start to gain traction in the second half of 2019 as our business model changes and cost improvement initiatives begin to take hold.” kontoor brands’ outlook for the fiscal year ended december 28, 2019, remains unchanged: revenue is expected to exceed $2.5 billion, reflecting a mid-single digit decline compared with full year 2018 adjusted revenue. excluding the negative impact of foreign currency exchange rates, impacts of a prior year u.s. retailer bankruptcy, and strategic business exits, full year 2019 revenue is expected to be relatively consistent with full year 2018 adjusted revenue. first half reported revenue declined mid-single digits and the company expects second half revenue to improve, with the fourth quarter benefiting the most from strategic actions and the q4 2018 customer bankruptcy comparison. adjusted ebitda is expected to range between $340 million and $360 million, reflecting a mid-single digit to low double-digit decline compared with full year 2018 adjusted ebitda. as anticipated, the impacts of strategic actions and the prior year u.s. retailer bankruptcy weighed on our second quarter performance. we expect to see improved second half performance as benefits from restructuring and cost savings initiatives begin to more fully manifest. as planned, inventory levels are expected to remain elevated during the third quarter of the year due to the inventory built during the second quarter in anticipation of plants closed. the company expects second half adjusted ebitda to be more weighted to the fourth quarter. capital expenditures are expected to range between $55 million and $65 million, including approximately $30 million to $40 million to support the design and implementation of a global enterprise resource planning (erp) system. as previously announced, the global erp system implementation is expected to require approximately $80 million to $90 million of capital investment during a two-to-three year period and is expected to result in significant efficiencies and cost savings, once fully implemented. other full year assumptions include an effective tax rate of approximately 24 percent. interest expense should be approximately $40 million in 2019, or $60 million on an annualized basis. reaffirmed 2020 to 2021 financial roadmap revenue is expected to increase at a low-single digit compound annual growth rate (cagr) over the period. adjusted ebitda is expected to increase at a mid-single digit cagr over the period. capital expenditures are expected to range between $105 million and $110 million in aggregate over the period. webcast information kontoor brands will host its second quarter 2019 conference call beginning at 8:30 a.m. eastern time today, august 8, 2019. the conference will be broadcast live via the internet, accessible at https://www.kontoorbrands.com/investors. for those unable to listen to the live broadcast, an archived version will be available at the same location for three months. non-gaap financial measures constant currency - this release refers to “reported” amounts in accordance with u.s. gaap, which include translation and transactional impacts from changes in foreign currency exchange rates. this release also refers to “constant currency” amounts, which exclude the translation impact of changes in foreign currency exchange rates. adjusted amounts - this release refers to adjusted amounts that exclude the impact of restructuring and separation costs, changes in our business model and other adjustments. reconciliations of these non-gaap measures to the most comparable gaap measures are presented in the supplemental financial information included with this release that identifies and quantifies all reconciling adjustments and provides management’s view of why this information is useful to investors. such non-gaap measures should be viewed in addition to, and not as an alternative for, reported results under gaap. the non-gaap measures used by kontoor brands in this press release may be different from the measures used by other companies. about kontoor brands kontoor brands, inc. (nyse:ktb) is a global lifestyle apparel company, with a portfolio led by two of the world’s most iconic consumer brands: wrangler® and lee®. kontoor designs, manufactures and distributes superior high-quality products that look good and fit right, giving people around the world the freedom and confidence to express themselves. kontoor brands is a purpose-led organization focused on leveraging its global platform, strategic sourcing model and best-in-class supply chain to drive brand growth and deliver long-term value for its stakeholders. forward-looking statements certain statements included in this release and attachments are "forward-looking statements" within the meaning of the federal securities laws. forward-looking statements are made based on our expectations and beliefs concerning future events impacting kontoor brands and therefore involve several risks and uncertainties. you can identify these statements by the fact that they use words such as “will,” “anticipate,” “estimate,” “expect,” “should,” and “may” and other words and terms of similar meaning or use of future dates. we caution that forward-looking statements are not guarantees and that actual results could differ materially from those expressed or implied in the forward-looking statements. potential risks and uncertainties that could cause the actual results of operations or financial condition of kontoor to differ materially from those expressed or implied by forward-looking statements in this release include, but are not limited to: risks associated with kontoor brands’ spin-off from vf corporation, including the risk of disruption to kontoor’s business in connection with the spin-off and that kontoor could lose revenue as a result of such disruption; the risk that kontoor does not realize all of the expected benefits of the spin-off; the risk that the spin-off will not be tax-free for u.s. federal income tax purposes; and the risk that there will be a loss of synergies from separating the businesses that could negatively impact the balance sheet, profit margins or earnings of kontoor. other risks for kontoor include foreign currency fluctuations; the level of consumer demand for apparel; disruption to distribution systems; reliance on a small number of large customers; the financial strength of customers; fluctuations in the price, availability and quality of raw materials and contracted products; disruption and volatility in the global capital and credit markets; response to changing fashion trends, evolving consumer preferences and changing patterns of consumer behavior, intense competition from online retailers, manufacturing and product innovation; increasing pressure on margins; ability to implement its business strategy; ability to grow its international and direct-to-consumer businesses; kontoor’s and its vendors’ ability to maintain the strength and security of information technology systems; the risk that kontoor’s facilities and systems and those of third-party service providers may be vulnerable to and unable to anticipate or detect data security breaches and data or financial loss; ability to properly collect, use, manage and secure consumer and employee data; stability of manufacturing facilities and foreign suppliers; continued use by suppliers of ethical business practices; ability to accurately forecast demand for products; continuity of members of management; ability to protect trademarks and other intellectual property rights; possible goodwill and other asset impairment; maintenance by licensees and distributors of the value of kontoor’s brands; ability to execute and integrate acquisitions; changes in tax laws and liabilities; legal, regulatory, political and economic risks; the risk of economic uncertainty associated with the pending exit of the united kingdom from the european union ("brexit") or any other similar referendums that may be held; and adverse or unexpected weather conditions. more information on potential factors that could affect kontoor’s financial results is included from time to time in kontoor’s public reports filed with the sec and kontoor brands’ registration statement on form 10 also filed with the sec. kontoor brands, inc. condensed combined statements of income (unaudited) (in thousands) three months ended june % six months ended june % 2019 2018 change 2019 2018 change net revenues $ 609,746 $ 663,856 (8)% $ 1,258,090 $ 1,333,519 (6)% costs and operating expenses cost of goods sold 374,177 396,785 (6)% 775,202 779,206 (1)% selling, general and administrative expenses 182,049 191,337 (5)% 404,173 386,171 5% total costs and operating expenses 556,226 588,122 (5)% 1,179,375 1,165,377 1% operating income 53,520 75,734 (29)% 78,715 168,142 (53)% interest income from former parent, net 1,423 1,660 (14)% 3,762 3,311 14% interest expense (7,638 ) (416 ) * (7,736 ) (781 ) * interest income 1,408 1,386 2% 2,831 2,668 6% other expense, net (1,370 ) (1,241 ) 10% (2,341 ) (2,438 ) (4)% income before income taxes 47,343 77,123 (39)% 75,231 170,902 (56)% income taxes 9,357 16,665 (44)% 21,832 30,748 (29)% net income $ 37,986 $ 60,458 (37)% $ 53,399 $ 140,154 (62)% earnings per share basic $ 0.67 $ 1.07 $ 0.94 $ 2.47 diluted $ 0.67 $ 1.07 $ 0.94 $ 2.47 basis of presentation: the company operates and reports using a 52/53 week fiscal year ending on the saturday closest to december 31 each year. for presentation purposes herein, all references to periods ended june 2019 and june 2018 relate to the 13-week and 26-week fiscal periods ended june 29, 2019 and june 30, 2018, respectively. references to december 2018 relate to the balance sheet as of december 29, 2018. * calculation not meaningful kontoor brands, inc. condensed combined balance sheets (unaudited) (in thousands) june 2019 december 2018 june 2018 assets current assets cash and equivalents $ 76,687 $ 96,776 $ 86,356 accounts receivable 254,049 252,966 262,525 due from related parties, current — 547,690 553,976 related party notes receivable — 517,940 546,740 inventories 538,168 473,812 491,836 other current assets 79,397 52,014 45,202 total current assets 948,301 1,941,198 1,986,635 due from related parties, noncurrent — 611 — property, plant and equipment, net 131,727 138,449 142,263 operating lease assets 90,416 — — intangible assets, net 50,953 53,059 55,263 goodwill 213,761 214,516 216,080 other assets 153,044 110,632 120,439 total assets $ 1,588,202 $ 2,458,465 $ 2,520,680 liabilities and equity current liabilities short-term borrowings $ 2,829 $ 3,215 $ 5,062 current portion of long-term debt 26,250 — — accounts payable 159,214 134,129 136,620 due to related parties, current — 16,140 59,424 related party notes payable — 269,112 269,112 accrued liabilities 177,582 194,228 166,881 operating lease liabilities, current 34,439 — — total current liabilities 400,314 616,824 637,099 operating lease liabilities, noncurrent 58,594 — — other liabilities 86,189 118,189 115,894 long-term debt 960,937 — — commitments and contingencies total liabilities 1,506,034 735,013 752,993 total equity 82,168 1,723,452 1,767,687 total liabilities and equity $ 1,588,202 $ 2,458,465 $ 2,520,680 kontoor brands, inc. condensed combined statements of cash flows (unaudited) (in thousands) six months ended june 2019 2018 operating activities net income $ 53,399 $ 140,154 depreciation and amortization 16,025 16,089 stock-based compensation 11,473 5,552 other, net 499,254 (426,793 ) cash provided (used) by operating activities 580,151 (264,998 ) investing activities capital expenditures (9,300 ) (13,035 ) repayments from related party notes receivable 517,940 — other, net 1,081 6,050 cash provided (used) by investing activities 509,721 (6,985 ) financing activities proceeds from issuance of long-term debt 1,050,000 — other, net (including transfers to former parent) (2,160,956 ) 280,534 cash (used) provided by financing activities (1,110,956 ) 280,534 effect of foreign currency rate changes on cash and cash equivalents 995 (3,006 ) net change in cash and cash equivalents (20,089 ) 5,545 cash and cash equivalents – beginning of period 96,776 80,811 cash and cash equivalents – end of period $ 76,687 $ 86,356 kontoor brands, inc. supplemental financial information reportable segment information (unaudited) (dollars in thousands) three months ended june % change constant currency (a) 2019 2018 % change segment revenues: wrangler $ 363,992 $ 397,745 (8)% (7)% lee 206,908 217,773 (5)% (3)% other (b) 38,846 48,338 (20)% (20)% total segment revenues $ 609,746 $ 663,856 (8)% (7)% segment profit: wrangler $ 56,980 $ 67,670 (16)% (18)% lee 13,747 18,065 (24)% (21)% other (b) 1,805 1,363 32% 33% total segment profit 72,532 87,098 (17)% (18)% corporate and other expenses (20,382 ) (12,605 ) 62% 62% interest income from former parent, net 1,423 1,660 (14)% (14)% interest expense (7,638 ) (416 ) * * interest income 1,408 1,386 2% 2% income before income taxes $ 47,343 $ 77,123 (39)% (40)% six months ended june % change constant currency (a) 2019 2018 % change segment revenues: wrangler $ 733,927 $ 762,728 (4)% (2)% lee 448,439 479,734 (7)% (4)% other (b) 75,724 91,057 (17)% (17)% total segment revenues $ 1,258,090 $ 1,333,519 (6)% (4)% segment profit: wrangler $ 80,645 $ 130,616 (38)% (48)% lee 31,380 54,054 (42)% (41)% other (b) (1,280 ) (387 ) (231)% (230)% total segment profit 110,745 184,283 (40)% (47)% corporate and other expenses (34,371 ) (18,579 ) 85% 85% interest income from former parent, net 3,762 3,311 14% 14% interest expense (7,736 ) (781 ) * * interest income 2,831 2,668 6% 7% income before income taxes $ 75,231 $ 170,902 (56)% (63)% (a) refer to constant currency definition on the following pages. (b) other is included for purposes of reconciliation of revenues and profit, but it is not considered a reportable segment. other includes sales (i) of vf-branded products (other than wrangler® and lee® branded products which are reported in the respective segments above) and third-party branded merchandise at vf outlet™ stores, (ii) of rock and republic® branded apparel, (iii) to vf for products manufactured in our plants and use of our transportation fleet and, (iv) from fulfilling a transition services agreement related to vf's sale of its nautica® brand business in mid-2018. * calculation not meaningful kontoor brands, inc. supplemental financial information reportable segment information – constant currency basis (non-gaap) (unaudited) (dollars in thousands) three months ended june 2019 as reported adjust for foreign under gaap currency exchange constant currency segment revenues: wrangler $ 363,992 $ 5,452 $ 369,444 lee 206,908 4,462 211,370 other 38,846 17 38,863 total segment revenues $ 609,746 $ 9,931 $ 619,677 segment profit: wrangler $ 56,980 $ (1,356 ) $ 55,624 lee 13,747 603 14,350 other 1,805 3 1,808 total segment profit 72,532 (750 ) 71,782 corporate and other expenses (20,382 ) (62 ) (20,444 ) interest income from former parent, net 1,423 — 1,423 interest expense (7,638 ) (375 ) (8,013 ) interest income 1,408 9 1,417 income before income taxes $ 47,343 $ (1,178 ) $ 46,165 six months ended june 2019 as reported adjust for foreign under gaap currency exchange constant currency segment revenues: wrangler $ 733,927 $ 14,424 $ 748,351 lee 448,439 13,973 462,412 other 75,724 18 75,742 total segment revenues $ 1,258,090 $ 28,415 $ 1,286,505 segment profit: wrangler $ 80,645 $ (12,747 ) $ 67,898 lee 31,380 299 31,679 other (1,280 ) 2 (1,278 ) total segment profit 110,745 (12,446 ) 98,299 corporate and other expenses (34,371 ) (62 ) (34,433 ) interest income from former parent, net 3,762 — 3,762 interest expense (7,736 ) (325 ) (8,061 ) interest income 2,831 18 2,849 income before income taxes $ 75,231 $ (12,815 ) $ 62,416 constant currency financial information the company is a global company that reports financial information in u.s. dollars in accordance with gaap. foreign currency exchange rate fluctuations affect the amounts reported by the company from translating its foreign revenues and expenses into u.s. dollars. these rate fluctuations can have a significant effect on reported operating results. as a supplement to our reported operating results, we present constant currency financial information, which is a non-gaap financial measure that excludes the impact of translating foreign currencies into u.s. dollars. we use constant currency information to provide a framework to assess how our business performed excluding the effects of changes in the rates used to calculate foreign currency translation. management believes this information is useful to investors to facilitate comparison of operating results and better identify trends in our businesses. to calculate foreign currency translation on a constant currency basis, operating results for the current year period for entities reporting in currencies other than the u.s. dollar are translated into u.s. dollars at the average exchange rates in effect during the comparable period of the prior year (rather than the actual exchange rates in effect during the current year period). these constant currency performance measures should be viewed in addition to, and not as an alternative for, reported results under gaap. the constant currency information presented may not be comparable to similarly titled measures reported by other companies. kontoor brands, inc. supplemental financial information condensed combined statements of income by quarter (unaudited) (in thousands) 2018 march june september december full year net revenues $ 669,663 $ 663,856 $ 704,246 $ 726,233 $ 2,763,998 costs and operating expenses cost of goods sold 382,421 396,785 424,053 446,176 1,649,435 selling, general and administrative expenses 194,834 191,337 184,909 210,441 781,521 total costs and operating expenses 577,255 588,122 608,962 656,617 2,430,956 operating income 92,408 75,734 95,284 69,616 333,042 interest income from former parent, net 1,651 1,660 2,104 2,323 7,738 interest expense (365 ) (416 ) (200 ) (2,755 ) (3,736 ) interest income 1,282 1,386 1,508 4,127 8,303 other expense, net (1,197 ) (1,241 ) (2,084 ) (746 ) (5,269 ) income before income taxes 93,779 77,123 96,612 72,565 340,078 income taxes 14,083 16,665 25,594 20,663 77,005 net income $ 79,696 $ 60,458 $ 71,018 $ 51,902 $ 263,073 basis of presentation: the company operates and reports using a 52/53 week fiscal year ending on the saturday closest to december 31 of each year. for presentation purposes herein, all references to the march, june, september and december quarters of 2018 relate to the 13-week fiscal periods ended march 31, 2018, june 30, 2018, september 29, 2018, and december 29, 2018, respectively. the company presented its 2018 unaudited condensed combined statements of income by quarter in its press release dated june 20, 2019 in order to provide investors with comparable financial information. selling, general and administrative expenses in the june and september 2018 quarters presented above have been revised to correct the allocation of a $3.5 million pre-tax pension curtailment charge from the september 2018 quarter to the june 2018 quarter. kontoor brands, inc. supplemental financial information reconciliation of adjusted financial measures by quarter (non-gaap) (unaudited) (thousands, except per share amounts) 2019 2018 march june march june september december full year net revenues - as reported under gaap $ 648,344 $ 609,746 $ 669,663 $ 663,856 $ 704,246 $ 726,233 $ 2,763,998 business model changes(a) (18,416 ) (7,389 ) (21,694 ) (21,027 ) (22,248 ) (16,363 ) (81,332 ) adjusted net revenues $ 629,928 $ 602,357 $ 647,969 $ 642,829 $ 681,998 $ 709,870 $ 2,682,666 cost of goods sold - as reported under gaap $ 401,025 $ 374,177 $ 382,421 $ 396,785 $ 424,053 $ 446,176 $ 1,649,435 restructuring & separation costs(b) (12,847 ) (4,807 ) — (1,662 ) (129 ) (10,731 ) (12,522 ) business model changes(a) (17,831 ) (6,363 ) (15,443 ) (16,489 ) (20,207 ) (13,934 ) (66,073 ) other adjustments(c) (186 ) (1,618 ) (2,968 ) 281 631 (19 ) (2,075 ) adjusted cost of goods sold $ 370,161 $ 361,389 $ 364,010 $ 378,915 $ 404,348 $ 421,492 $ 1,568,765 selling, general and administrative expenses - as reported under gaap $ 222,124 $ 182,049 $ 194,834 $ 191,337 $ 184,909 $ 210,441 $ 781,521 restructuring & separation costs(b) (23,734 ) (7,954 ) (1,936 ) (355 ) (1,087 ) (12,715 ) (16,093 ) business model changes(a) (3,724 ) (2,410 ) (6,175 ) (6,203 ) (4,460 ) (4,787 ) (21,625 ) other adjustments(c) (2,638 ) (4,602 ) 2,290 (4,216 ) 5,437 11,765 15,276 adjusted selling, general and administrative expenses $ 192,028 $ 167,083 $ 189,013 $ 180,563 $ 184,799 $ 204,704 $ 759,079 other expense, net - as reported under gaap $ (971 ) $ (1,370 ) $ (1,197 ) $ (1,241 ) $ (2,084 ) $ (746 ) $ (5,269 ) business model changes(a) 61 (204 ) 20 (216 ) 53 (10 ) (153 ) other adjustments(c) 1,368 1,524 1,115 1,341 1,164 1,558 5,178 adjusted other expense, net $ 458 $ (50 ) $ (62 ) $ (116 ) $ (867 ) $ 802 $ (244 ) diluted earnings per share - as reported under gaap $ 0.27 $ 0.67 $ 1.41 $ 1.07 $ 1.25 $ 0.92 $ 4.64 restructuring & separation costs(b) 0.59 0.18 0.03 0.03 0.02 0.33 0.40 business model changes(a) 0.06 0.02 — 0.03 0.05 0.04 0.12 other adjustments(c) 0.04 0.08 0.01 0.05 (0.09 ) (0.17 ) (0.19 ) adjusted diluted earnings per share $ 0.96 $ 0.96 $ 1.45 $ 1.18 $ 1.23 $ 1.12 $ 4.98 net income - as reported under gaap $ 15,413 $ 37,986 79,696 60,458 71,018 51,902 263,073 income taxes 12,475 9,357 14,083 16,665 25,594 20,663 77,005 interest income from former parent, net (2,339 ) (1,423 ) (1,651 ) (1,660 ) (2,104 ) (2,323 ) (7,738 ) interest expense 98 7,638 365 416 200 2,755 3,736 interest income (1,423 ) (1,408 ) (1,282 ) (1,386 ) (1,508 ) (4,127 ) (8,303 ) ebit $ 24,224 $ 52,150 $ 91,211 $ 74,493 $ 93,200 $ 68,870 $ 327,773 depreciation and amortization 7,703 7,761 8,310 7,780 7,581 7,361 31,032 ebitda $ 31,927 $ 59,911 $ 99,521 $ 82,273 $ 100,781 $ 76,231 $ 358,805 restructuring & separation costs(b) 36,581 12,761 1,936 2,017 1,216 23,446 28,615 business model changes(a) 3,200 1,180 (57 ) 1,449 2,472 2,348 6,212 other adjustments(c) 4,192 7,744 1,793 5,276 (4,904 ) (10,188 ) (8,023 ) adjusted ebitda $ 75,900 $ 81,596 $ 103,193 $ 91,015 $ 99,565 $ 91,837 $ 385,609 kontoor brands, inc. supplemental financial information reconciliation of adjusted financial measures by quarter (non-gaap) (unaudited) (thousands, except per share amounts) basis of presentation: the company operates and reports using a 52/53 week fiscal year ending on the saturday closest to december 31 of each year. for presentation purposes herein, all references to the march 2019, june 2019, march 2018, june 2018, september 2018 and december 2018 quarters relate to the 13-week fiscal periods ended march 30, 2019, june 29, 2019, march 31, 2018, june 30, 2018, september 29, 2018, and december 29, 2018, respectively. the company has presented its 2018 financial information by quarter in order to provide investors with comparable financial information. non-gaap financial information the financial information above has been presented on a gaap basis and on an adjusted basis. these adjusted presentations are non-gaap measures. management uses the above financial measures internally in its budgeting and review process and, in some cases, as a factor in determining compensation. in addition, adjusted ebitda is a key financial measure for the company's shareholders and financial leaders, since the company's current debt financing agreements require the measurement of adjusted ebitda, along with other measures, in connection with the company's compliance with debt covenants. while management believes that these non-gaap financial measures are useful in evaluating the business, this information should be considered as supplemental in nature and should be viewed in addition to, and not as an alternate for, reported results under gaap. in addition, these non-gaap measures may be different from similarly titled measures used by other companies. (a) business model changes relate to the exit of unprofitable markets in select european and south american countries, and the discontinuation of manufacturing for vf corporation. the business model change costs resulted in a net tax benefit of $0.023 million, $0.052 million, $0.247 million, $0.080 million, $0.129 million and $0.120 million for march 2019, june 2019, march 2018, june 2018, september 2018 and december 2018, respectively. (b) restructuring costs relate to strategic actions taken to achieve cost savings, and separation costs relate to the spin-off from vf corporation and establishment of kontoor as a separate public company. the restructuring costs resulted in a net tax expense of $3.184 million, $2.702 million, $0.457 million, $0.277 million, $0.236 million and $5.033 million for march 2019, june 2019, march 2018, june 2018, september 2018 and december 2018, respectively. (c) other adjustments have been made to revise historical corporate allocations, primarily attributable to the carve-out basis of accounting, so that adjusted ebitda reflects the anticipated cost structure of a separate public company. additionally, adjustments have been made to remove the funding fees related to the accounts receivable sale arrangement, as they are treated as interest expense for calculation of adjusted ebitda for debt compliance purposes. the other adjustments resulted in a net tax expense/(benefit) of $0.378 million, $1.457 million, ($0.075 million), $0.950 million, ($1,292 million) and ($2.134 million) for march 2019, june 2019, march 2018, june 2018, september 2018 and december 2018, respectively. kontoor brands, inc. supplemental financial information summary of select gaap and non-gaap measures (unaudited) (in thousands) three months ended june 2019 2018 gaap adjusted gaap adjusted net revenues $ 609,746 $ 602,357 $ 663,856 $ 642,829 gross profit $ 235,569 $ 240,968 $ 267,071 $ 263,914 as a percentage of total net revenues 38.6 % 40.0 % 40.2 % 41.1 % selling, general and administrative expenses $ 182,049 $ 167,083 $ 191,337 $ 180,563 as a percentage of total net revenues 29.9 % 27.7 % 28.8 % 28.1 % earnings per share - diluted $ 0.67 $ 0.96 $ 1.07 $ 1.18 ebit $ 52,150 $ 73,835 $ 74,493 $ 83,235 ebitda $ 59,911 $ 81,596 $ 82,273 $ 91,015 non-gaap financial information the financial information above has been presented on a gaap basis and on an adjusted basis. these adjusted presentations are non-gaap measures. management uses the above financial measures internally in its budgeting and review process and, in some cases, as a factor in determining compensation. in addition, adjusted ebitda is a key financial measure for the company's shareholders and financial leaders, since the company's current debt financing agreements require the measurement of adjusted ebitda, along with other measures, in connection with the company's compliance with debt covenants. while management believes that these non-gaap financial measures are useful in evaluating the business, this information should be considered as supplemental in nature and should be viewed in addition to, and not as an alternate for, reported results under gaap. in addition, these non-gaap measures may be different from similarly titled measures used by other companies. kontoor brands, inc. supplemental financial information reconciliation of adjusted net revenue (unaudited) (in thousands) three months ended june 2019 net revenues-as reported under gaap wrangler lee other total channel revenues u.s. wholesale $ 299,040 $ 108,757 $ 4,710 $ 412,507 non-u.s. wholesale 40,569 56,845 633 98,047 branded direct-to-consumer 24,383 41,306 14 65,703 other — — 33,489 33,489 total $ 363,992 $ 206,908 $ 38,846 $ 609,746 geographic revenues u.s. $ 317,831 $ 130,795 $ 38,002 $ 486,628 international 46,161 76,113 844 123,118 total $ 363,992 $ 206,908 $ 38,846 $ 609,746 adjustments for business model changes(a) wrangler lee other total channel revenues u.s. wholesale $ — $ — $ — $ — non-u.s. wholesale (1,484 ) (184 ) — (1,668 ) branded direct-to-consumer (1,936 ) (336 ) — (2,272 ) other — — (3,449 ) (3,449 ) total $ (3,420 ) $ (520 ) $ (3,449 ) $ (7,389 ) geographic revenues u.s. $ — $ — $ (3,449 ) $ (3,449 ) international (3,420 ) (520 ) — (3,940 ) total $ (3,420 ) $ (520 ) $ (3,449 ) $ (7,389 ) adjusted net revenues wrangler lee other total channel revenues u.s. wholesale $ 299,040 $ 108,757 $ 4,710 $ 412,507 non-u.s. wholesale 39,085 56,661 633 96,379 branded direct-to-consumer 22,447 40,970 14 63,431 other — — 30,040 30,040 total $ 360,572 $ 206,388 $ 35,397 $ 602,357 geographic revenues u.s. $ 317,831 $ 130,795 $ 34,553 $ 483,179 international 42,741 75,593 844 119,178 total $ 360,572 $ 206,388 $ 35,397 $ 602,357 non-gaap financial information the financial information above has been presented on a gaap basis and on an adjusted basis. these adjusted presentations are non-gaap measures. management uses the above financial measures internally in its budgeting and review process and, in some cases, as a factor in determining compensation. in addition, adjusted ebitda is a key financial measure for the company's shareholders and financial leaders, since the company's current debt financing agreements require the measurement of adjusted ebitda, along with other measures, in connection with the company's compliance with debt covenants. while management believes that these non-gaap financial measures are useful in evaluating the business, this information should be considered as supplemental in nature and should be viewed in addition to, and not as an alternate for, reported results under gaap. in addition, these non-gaap measures may be different from similarly titled measures used by other companies. (a) business model changes relate to the exit of unprofitable markets in select european and south american countries, and the discontinuation of manufacturing for vf corporation. kontoor brands, inc. supplemental financial information reconciliation of adjusted net revenue, continued (unaudited) (in thousands) three months ended june 2018 net revenues-as reported under gaap wrangler lee other total channel revenues u.s. wholesale $ 311,222 $ 100,674 $ 7,094 $ 418,990 non-u.s. wholesale 59,624 73,076 26 132,726 branded direct-to-consumer 26,899 44,023 27 70,949 other — — 41,191 41,191 total $ 397,745 $ 217,773 $ 48,338 $ 663,856 geographic revenues u.s. $ 329,166 $ 122,655 $ 48,312 $ 500,133 international 68,579 95,118 26 163,723 total $ 397,745 $ 217,773 $ 48,338 $ 663,856 adjustments for business model changes(a) wrangler lee other total channel revenues u.s. wholesale $ — $ — $ — $ — non-u.s. wholesale (3,338 ) (335 ) — (3,673 ) branded direct-to-consumer (4,450 ) (764 ) — (5,214 ) other — — (12,140 ) (12,140 ) total $ (7,788 ) $ (1,099 ) $ (12,140 ) $ (21,027 ) geographic revenues u.s. $ — $ — $ (12,140 ) $ (12,140 ) international (7,788 ) (1,099 ) — (8,887 ) total $ (7,788 ) $ (1,099 ) $ (12,140 ) $ (21,027 ) adjusted net revenues wrangler lee other total channel revenues u.s. wholesale $ 311,222 $ 100,674 $ 7,094 $ 418,990 non-u.s. wholesale 56,286 72,741 26 129,053 branded direct-to-consumer 22,449 43,259 27 65,735 other — — 29,051 29,051 total $ 389,957 $ 216,674 $ 36,198 $ 642,829 geographic revenues u.s. $ 329,166 $ 122,655 $ 36,172 $ 487,993 international 60,791 94,019 26 154,836 total $ 389,957 $ 216,674 $ 36,198 $ 642,829
